The market for railcars is in the early stages of decline in terms of pricing and utilization, according to a November survey on railcar lessors by Paul Bodnar, an analyst with Longbow Research, Independence OH.
During November, 58 percent of contacts reported weaker month over month demand, up from approximately 42 percent in October. The weakness was seen in almost all car types including: ethanol tankers, as well as steel flat cars, gondolas, center beam, auto rack, and general purpose box cars. Demand for coal cars was flat, with scattered reports of an uptick for covered hopper cars
Also during November, 67 percent of those surveyed saw pricing declines on leases for railcars, versus 31 percent in October, just one month prior. The number of contacts planning to purchase additional cars for their fleets this month was similar to prior months but there was a large shift to the used market. “This month 38 percent of those planning to purchase cars were looking exclusively for used cars compared to 10 percent in earlier surveys,” Bodnar stated in a Longbow news release. “Conditions for both lessors and manufacturers will remain difficult over the next 12 months or longer. There is no need for additional cars in the market. We do note that there are fewer idle cars in the market versus the downturn at the start of the decade, so we see the bottom for lessors and manufacturers sustaining at a higher level and a much faster recovery when the market returns.”
In response to the survey results, Bodnar cut his fiscal 2009 earnings per share estimate for GATX Corp to $2.60 from $2.87, or 9.4 percent on higher interest expense and lower average lease rates in both North America and Europe. He left his NEUTRAL ratings unchanged on American Railcar Industries (ARII), Greenbrier (GBX), GATX Corp. (GMT), Freightcar America (RAIL), and Trinity Industries (TRN), according to the information.